lesson 2, chapter 4

What types of elasticity do the following scenarios illustrate? A. Change in price and change in revenue move in the same direction. ___________________ B. Change in price and change in revenue move in opposite directions. _____________________ C. Price change has no effect on revenue. ___________ ____________________

A. inelastic B. elastic C. unit elastic

Explain how consumer tastes affect demand

Advertising, fashion trends, peer group pressure, and even changes in the season can levels of consumer demand.

What causes the demand curve to shift to the right? To the left?

An increase in demand shifts the curve to the right, and a decrease in demand shifts it to the left.

Describe an example of diminishing marginal utility in your experience.

Answer will vary, but must include the concept that the first time she bought something, such as a bottle of water she wanted/needed it a lot. After the want/need was satisfied, she was willing to pay less for an additional, similar product.

Why would the number of consumers in a market shift the demand curve left or right?

More consumers usually means more market demand, so the curve shifts right. Fewer consumers means less market demand, so the curve shifts to the left.

What are the two variables needed to calculate demand?

The price of a product and the quantity available at any given time are the variables needed to calculate demand.

Explain how the income effect can make customers feel richer and, therefore, more likely to purchase greater quantities.

When the price for a product drops, consumers pay less to buy the same amount. The consumer, feeling "richer," has extra income to spend, and some of this income may go to the original product.

Demand is _____________________ when the price change results in a relatively larger change in quantity demanded. People _______________ need products urgently with this type of demand.

elastic; do not

When a purchase requires more of a person's income, it tends to be __________________. However, if the costly purchase is for a product or service a person needs urgently, the demand becomes more __________________.

elastic; inelastic

Why would consumer income change demand?

if a person were making more money, she might be able to buy more amounts at all possible prices. If she were making less, she might be able to buy fewer products at all possible prices.

When businesses raise prices on products with inelastic demand, total revenues are more likely to ___________________ than when prices are increased on product with elastic demand.

increase

Demand is _____________________ when the price change results in a relatively smaller change in quantity demanded. People ________________ need products urgently with this type of demand.

inelastic; do

If you cannot put off purchase of a product, demand is _____________________. If you can wait, demand is __________________.

inelastic; elastic

Demand is ___________ __________________ when the price change results in a proportional change in quantity demanded. This type of demand is __________________ to find.

unit elastic; difficult/rare

Define a change in quantity demanded and describe what causes it.

A change in quantity demanded is a movement along the demand curve showing that a different quantity is purchased in response to a change in the price of a product. While many things can affect the demand curve, only a change in price can cause a change in quantity demanded.

Explain the difference between a demand schedule and a demand curve. Would there be a reason to use one rather than the other?

A demand curve shows all the information of a demand schedule in a graph format. Answer may include: A demand schedule would illustrate specific price points more clearly, while a demand curve shows a trend more directly.

What is a demand schedule? How does a demand schedule help us understand the effect of changes in price on the amount demanded?

A demand schedule is a listing that shows the quantity demanded at all possible prices that might prevail in the market at a given time. By looking at a demand schedule, we can see at what point consumers consider the price of the product is too high and what prices would increase a consumer's demand for the product.

Describe the relationship in demand between a product and its substitutes.

If the price of a product increases, demand for its substitute generally increases. If price of a product decreases, demand for its substitute generally decreases. In these cases, people are looking for a less- expensive option, or substitute.

What does the Law of Demand state?

It states that more will be demanded at lower prices and less at higher prices; there is an inverse relationship between price and quantity demanded.

What kind of science is economics? What is a "law" in science?

It's a social science. A scientific law is a theory that is proven valid after repeated tests and fits within a larger understanding of the field.

Explain the concept of marginal utility. Why is diminishing marginal utility important to the demand curve?

Marginal utility is the additional satisfaction or usefulness obtained from acquiring or consuming one more unit of a product. The more products we get, the less additional satisfaction we have, and that's why the demand curve slopes downward.

How does a market demand curve differ from a demand curve? How are they similar?

The market demand curve shows the quantities demand by everyone who is interested in purchasing the product, while the term demand curve is used to describe the demand of an individual. The only difference between the curves is how many consumers it represents; the general shape and direction of the curves remains the same.

How do substitution effects and income effects affect the demand curve?

They cause a shift along the curve, but they do not change the curve itself.

How is the substitution effect different from the income effect?

While the income effect only deals with changes in demand due to the change of one price, the substitution effect is the change in quantity demanded for a product because its price has shifted in relation to other prices.

Can expectations change the demand for products? Why or why not?

Yes. Expecting product breakthroughs can result in fewer purchases now, shifting the curve to the left. Expecting product shortages can result in people stocking up now, shifting the curve to the right.

Generally, the more available substitutions are, the more __________________ the demand is. The ______________ of the market can affect demand elasticity in cases of substitutions.

elastic; size

Describe the relationship in demand between a product and its complement(s).

if the price of a product increases, demand for its complement(s) generally decreases. If price of a product decreases, demand for its complement(s) increases. Because product use increases the use of its complement(s), when people buy more of a product, they buy more of its complement(s).

Total expenditures (or total revenue) is found by multiplying the ________________ of a product by the __________________ ____________________ for any point along the __________________ curve.

price; quantity demanded; demand